PNC, Huntington Bancshares, Popular: Regional Banking Back To The Fore

At a time when growth in stocks of major banking corporations is stifled by the expectations of stricter capital rules, regional banking stocks such as Popular Inc (NASDAQ:BPOP), Huntington Bancshares Incorporated (NASDAQ:HBAN), and PNC Financial Services (NYSE: PNC) continue to make headway. To be on the right side of the fence, regional banks actually never lost their appeal but they now stand an even greater chance of attracting bigger investors as many would be forced to rebalance their portfolio in favour of smaller corporations once the new bank capital rules are decided next week. Here is what make these stocks potential winners:

Popular Inc A Center Of Attention

As the name suggests, Popular Inc (NASDAQ:BPOP) has been very popular with investors in the last year with the stock nearly doubling over the period. With a debt equity ratio of 0.45, it is not highly leveraged yet enough to take advantage of low interest rates. More recently, there have been some concerns about the bank’s profitability as it reported a loss of $120 million in the quarter ended March 31, 2013. In comparison, profits stood at $48.4 million during the same period last year.

However, this is due to the fact that Popular Inc (NASDAQ:BPOP) has been busy shedding its non-performing assets, often at a loss. The company is slated to report second quarter results later this month and the story may once again be the same with earnings clouded by restructuring efforts. However, the good thing is that the market is noticing and appreciating the short term pain which will yield long term gains. The stock trades at a forward price earnings ratio of 9.9 and offers 17 percent discount to its book value.

Bigger Not Necessarily Better

With 691 branches, mostly concentrated in Ohio and Michigan, Huntington Bancshares Incorporated (NASDAQ:HBAN) is a much larger a bank than Popular and has seen impressive stock price growth in recent months. Since the markets of these companies are different, their dynamics are also different. With 34 percent gains so far in the year, Huntington Bancshares trades at a forward price earnings ratio of 12.2 and offers a dividend yield of 2.3 percent. Its bigger size means the growth in profits is almost flat to marginally negative as seen in recent quarters.

In the latest quarter, its net interest income grew 3.1 percent to $394.6 million but net income dropped to $151.8 million from $153.3 million in the same period a year ago. Even though its gearing ratio stands at 0.25, a price by book value ratio of 1.3 indicate there may be limited room to grow further.

PNC Financial Stock Growth

PNC Financial Services (NYSE:PNC) has seen its stock advancing more than 30 percent so far in 2013. This money center bank practically has nationwide operations with 2,800 retail banking branches as on December 31, 2012. Despite its larger size, PNC Financial has been reporting strong quarterly financial results which explain the steady growth in stock price. During the quarter ended March 31, 2013, the company reported a 25.8 percent jump in profits to $1 billion. As a result, the company has boosted its quarterly dividend payout by 10 percent.This now works out to a respectable dividend yield of 2.3 percent

Strong earnings expectations mean the stock trades at a forward earnings ratio of 11. Shares quoting close to book value per share is another proof that more value is yet to get unlocked here. Meanwhile, prospects of increasing interest rates are likely to further strengthen margins which already stand at an enviable 19 percent.

All other factors remaining the same, Popular Inc (NASDAQ:BPOP) and PNC Financial Services (NYSE:PNC) are better calls than Huntington Bancshares Incorporated (NASDAQ:HBAN). While the latter have certain advantages in terms of margins and leveraging its size, Huntington Bancshares seems to have run a bit ahead of its fundamentals.